The International Monetary Fund (IMF) Friday said Barbados has made an excellent start in implementing its “ambitious and comprehensive economic reform programme” aimed at turning around an ailing economy it inherited soon after coming to office in May this year.
An IMF delegation, which has just ended a four-day visit to the island at the request of the Mia Mottley government, said that the rapid completion of the domestic part of the public debt restructuring has been very helpful in reducing uncertainty.
It said the government has engaged in intensive discussions with the social partnership to build public support for its economic reform programme.
The government here has outlined its Barbados’ Economic Recovery and Transformation (BERT) plan, supported by the IMF under the US$290 million Extended Fund Facility (EFF).
Head of the IMF delegation, Bert van Selm said the island’s international reserves, which reached a low of US$220 million, or five to six weeks of import coverage, at the end of May, have more than doubled since then, amounting to more than US$500 million in early December.
He said this has helped to rebuild confidence in the country’s macroeconomic framework.
The IMF official said that a comprehensive debt restructuring programme was announced on June 1, and after intensive discussions, an exchange offer for domestic debt in Barbados dollar-denominated was launched in early September.
On October 15, the government announced reaching agreement with an overwhelming majority of domestic creditors, with support of all commercial banks, general and life insurers, the National Insurance Scheme, the Central Bank of Barbados, and smaller creditors. The domestic debt exchange operation was finalized on November 19.
“The rapid completion of the domestic part of the debt restructuring has been very helpful in reducing economic uncertainty, and the terms agreed with creditors will help put public debt on a clear downward trajectory. A much-reduced government interest bill will help create much-needed fiscal space for increased social spending and investment in infrastructure,” van Selm said.
“Progress being made by the authorities in furthering good-faith discussions with external creditors is welcome. Continuing open dialogue and sharing of information will remain important in concluding an orderly debt restructuring process; completion of the external debt restructuring would help further reduce uncertainty.”
He said the government reported a primary surplus of 2.5 per cent of annual gross domestic product (GDP) in the first six months of the 2018-19 financial year.
In October, the authorities launched a programme to improve efficiency and reduce the public wage bill by laying off and retraining workers in the central government and public entities and the IMF official said this should help create a leaner, more efficient public sector, geared towards facilitating private sector-led growth.
“It should also help reduce central government transfers to state-owned enterprises, from a level that had become unsustainably high. In November, the authorities announced plans to modify the corporate income tax (CIT) framework, seeking to unify rates that apply to the international business sector and local enterprises. There are some risks to this reform, including making corporate income tax revenues more dependent on maintaining international competitiveness.”
The IMF delegation leader said that Barbados has also made good progress towards meeting end-December 2018 structural benchmarks under the EFF.
He said that in October, a regulatory sandbox for fintech start-ups was created to allow them to try out new technologies in a well-defined and controlled space.
“Legislation to facilitate a more efficient process for providing construction permits is underway, as is legislation to support a more efficient budget process, and stronger oversight of SOEs.”
He said after the IMF had approved the Eff for Barbados in October, both the Caribbean Development Bank (CDB) and the Inter-American Development Bank (IDB) approved policy-based loans.
These operations, worth US$75 million and U$100 million respectively will help finance the government, rebuild reserves, and support the reform process with policy advice.
“The government has engaged in intensive consultations with the Social Partnership to build public support for its economic reform programme. In October, a BERT Monitoring Committee was set up, and tasked to report to the Social Partnership and the public.
“Strong ownership and broad societal support bode well for successful program implementation and helping Barbados to achieve better living standards for all its citizens,’ van Selm said praising the authorities here “for their openness and candid discussions”.